Trading HSBC Shares

HSBC, more properly known as HSBC Holdings PLC, is the largest banking and financial services group based in Europe (and the second-largest public company and bank in the world). It has had its share of problems in the economic crisis, making it an interesting spread betting prospect. It has many offices around the world, and its assets are numbered in the trillions.

HSBC Holdings was only founded in London in 1991, principally so the group could acquire Midland Bank. It started in Hong Kong and Shanghai, where it was first opened in 1865, and it is currently the largest international bank in Hong Kong and in China. It was a Scotsman who originally founded the bank in Hong Kong, quickly expanding into China. HSBC stands for Hongkong and Shanghai Banking Corporation.

As a large international bank, HSBC was very involved with the global financial meltdown, and its shares plummeted from nearly 900 in 2006 to less than 300 in early 2009. It currently shows good volatility as you can see below.

Trading HSBC Shares

The ramifications of the subprime mortgage crisis and other suspect dealings continue to echo. In common with many banks, HSBC is declaring increased profits but has the spectre of future fines and deficit discoveries hanging over it, which tend to make the outlook pessimistic. Currently HSBC is involved in discussions and legislation about mis-selling claims as well as money laundering.

The rise and fall of the price has been fairly well marked by the MACD, as you can see above, with the price fluctuations touching on the Bollinger Bands as you would expect. In August 2011 HSBC divested itself of its credit card business and the share price has recovered about 10% since then.

It seems that the general trend for the next few years will be gradual revaluation in the market of the financial giants which suffered so badly in the global crisis. HSBC is showing some upward spurts, but is still a long way away from its valuation prior to 2007.

HSBC Rolling Daily

As you probably know, HSBC is a massive banking corporation, and as such has been heavily involved in the economic crisis of recent years. If you think that this still has some way to play out, then you may be interested in placing a sell bet, shorting the shares with your spread bet. The current price for a rolling daily bet is 582.3 – 583.7. You may choose to bet £20 per point that the price will go down.

With a rolling daily spread bet, your account may be adjusted each night when the bet is rolled over. For a long bet, there will be an interest charge, and with a short bet there is the possibility that you will receive interest. This is very unlikely with the current low interest rates. In either case, the account adjustment is usually not large.

After a week or two, you may find the quote has dropped to 556.8 – 558.2, and decide to cash in your bet. You placed the bet at the selling price of 582.3, and it closed at 558.2 for a gain of 24.1 points. Multiplying by your stake, you would have won £482.

It often happens that the price does not go in the direction that you expect, and you must be prepared to accept some losses. Say in this case the price went up to 596.1 – 597.5, you could close your bet and calculate your loss. The bet opened at 582.3, and it closed at 597.5. The difference in points is 15.2, which means for your chosen stake you have lost £304.

Sometimes you can keep down the amount you lose on a bad bet by using a stop loss order, which you place when you open the original order and which closes the bad bet for you when it reaches a certain level. If you had used one in this case, you might find that the bet was closed when the price went up to 592.2 – 593.6. With a starting price of 582.3, and a closing price of 593.6, you would have lost 11.3 points, which would amount to £226 on the bet you placed.

HSBC Futures

Spread betting is a trading tool, and therefore not like an investment which you can leave in place for years. However you can take out futures based spread bets that do not expire for many months, and this facility allows you to bet on the medium-term price movement of the shares. The current quote for HSBC shares for the far quarter, nine months away, is 583.3 – 590.5.

Suppose you believe that the banking recovery is going to strengthen, you may want to place a long or buy bet on the shares, staking perhaps £17 per point. You might find that after a few months the quote from your spread betting provider for the share price is 632.1 – 638.3. Closing the bet now, you would profit 632.1-590.5 points, which is 41.6. Multiplying by your stake, you won £707.20.

Sometimes the price will go the opposite way to the one you wanted, and you need to close your bet to minimize your loss. This can happen even if your bet turns out in the long run – if your short term loss is growing, you may need to close the bet anyway in case it does not turn around. Suppose in this case the price fell to 556.6 – 562.2, and you cut your losses. The bet which went on at 590.5 is closed at 556.6, for a loss of 33.9 points. This would cost you £576.30.

To help in keeping their losses down, many traders use a stop loss order, placed at the time of the original order, which instructs the spread betting provider to close a losing bet if and when it reaches a certain level. This saves you having to keep checking the market. Perhaps in this case with a stoploss order your bet would have closed at 570.6 – 575.9. The point loss is kept down to 590.5 minus 570.6, 19.9 points, which for your wager amounts to £383.30.

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